tv [untitled] October 11, 2010 7:00pm-7:30pm PST
members. how well they do, we're not sure. we hope to help them do that by properly ar tick latings it so there's there's a mutual understanding of where we're coming from. it affects an entire city. tenants as well as owners. we rely on the committee to give us those insights. illegal units the one that -- i don't know if the answer is we're addressing it or not addressing it. >> i think what we've seen has the legislation for the five and more units buildings going through, the units being identified, so if they have a four-unit building with an illegal unit that's a five-unit building and gets pulled into the whole process and addressed. >> city policy on whether to legalize or require upgrades to have somebody taking it out. no, we're not following
recommendation for -- how owners can be incentivized in order tord carry tout seismic strengthening. but that's not one this caps project is taking a position on. >> buildings don't change ownership over hand. in fact, many are under one-family ownership and would not be affected. and that's really why we have sourt of a two-pronged approach. pronged in approach to how we would lay out. because of the housing losses and the safety threats from the five-unit residential buildings wrth with the soft stair story. the buildings is having to deal with it. it's not one that relies on the building to sell over time. it doesn't, and that's an important issue for the city of san francisco. and i would think dealing with those buildings, we're not going to wait until they might
sell some time in the future. the city would have a celebrated program for those type of buildings. i think perhaps this is yet to be maybe that's the kind of ability you have a long deadline and agree on those houses selling over time, that might be a fwar better strategy for that type of building than some of the others. that's the kind of process that we would lay out. insurance is a business. for the most part. i think the rates they are chargeing in san francisco and other places are hugely high. the deductibles are very high. and it doesn't make good sense. when i look at insurance, i think that it's probably reflect it is risks fairly well. that's why it's expensive. >> that's why if we could just have a process in this city where people would look at what
their premium would be to have build that is resist earthquakes and not need earthquake insurance. earthquake insurance in the residential market is not a very effective tool. insurance industry hasn't been very active. so we have that kind of entrey. and some representives are countries that -- >> have a great exposure for fire, for example, and haven't seen any real interest in them dealing with fire fop and this turns out to be far more active when it comes to fire. >> commissioner? >> have you guys run any doomsday scenarios where residents lose their building and set fire to it?
>> and what? >> well, they torch their own building because they'll get rei mean bursed if it's a fire. that could lead to other fires. i 4 i think the insurance companies should be aware of that type of scenario. >> as commissioner, you know that is an unfortunate tchaurns does occur. and it's one of those causes often fire. when you look at earthquake fire statistics, they don't follow cause within the first few minutes. they spread out over a few days and certainly arson becomes an issue. it is a heightened time for fires over a period of some time. it is an issue, and it's one cause of fire. >> one other question, mister -- do you think we've done enough as far as educating the average joe homeowner out there
to what's really going on here with caps? and what's in it for them? what it's going to cost them? >> no. i mean, we we have not. we have not as a caps project, we really don't have an outreach budget, if you will. i think that individuals within d.b.i. do a great job counseling people on a person person-by-person basis. when you look at the literature in terms of risk communication, what you find is that the people need a consistent message given over time from a number of different sources and sources they tend to rely on for good information. so that message then needs to come from, you know, not only the city and d.b.i. and the caps project, but it has to come from the red cross and the department of emergency management. it has to to come from the insurance industries and the hardware stores.
and contractors who might go door-to-door and try to sell their services. i think there needs to be a campaign so people are fully informed, both in terms of what they face but also on what they can do and the cost of doing it. it's badly needed. it's one of our recommendations. proim commissioner hechanova? commissioner hechanova: on the estimated loss on the percentages where they are showing on the wood frame residences along with the, you know, three, four and five, on the risk communication, are the non-profit housing sector really being engaged as part of their ability to respond to something like this? i know on the calt debris -- category of those private owners they do have the means, especially on the non-profit housing.
they're on the marginal edge of being able to really respond in something like this. >> some representatives of housing within the tenderloin have come to a few of our meetings but not on a regular basis. i think they perhaps know of them. but i don't think people really fully understand how earthquake losses will affect low and assisted living situations. many of the buildings -- let me back up. many of the repairs took a few years to accomplish. we find when it's multi-unit buildings, it's very difficult. it's not like you can just go out and start working on your house. there's a process that goes through. funding is really key. it depends on the economy at the time. when it comes to larger buildings, owners who have no equity, they can't borrow, they
have no income stream. it's very difficult. it's going to rely greatly on the city to help that housing sector come back. i think that there's a lot of housing units in buildings that are extremely vulnerable, that will be damaged. may not collapse. some of them might. but the damage will be severe. and it will take 10 years of these buildings to come back. so dealing with replacement housing for low-income housing is a huge issue that the city has to face. i think our studies show that clearly. it's a huge issue. commissioner hechanova: thank you. president murphy: commissioner lee? commissioner lee: i want to get back to the insurance topic. i was just wondering, was there any discussion on any alternative to insurance? by that i mean the whole idea of insurance is to find enough funding to allow the homeowners offer property -- or property
owners to rebuild. were there any discussions of possibly out-of-the-box ideas of how to do that? is it mandatory that every property owner chips in to a pool of money or something like that? or even -- i don't know. i'm blank here. but any ideas that would allow homeowners to get back on their feet quicker. >> advisory -- commissioner lee, thank you. the advisory committee has talked about that issue from time to time. part of it is it becomes sort of a jurisdictional issue for our project in that we're not really doing recovery -- there's a recovery effort within the city. the city administrator's office carries it out where many of these issues need to be addressed. but we have spoken about some of these different options, if you will. one was recommending to the city to make earthquake insurance mandatory. for certain classes of
buildings. it sparked heated discussion. somebody said you can't do that. someone said, what's the difference if a state can require cars to have insurance why can't it require earthquake insurance as well? possibly so, but i think that's legislation. another issue in that multi-unit buildings -- multi-owner unit buildings have a difficult time dealing with damage whether it's fire or from an earthquake. the ownership has different interests, different timelines, different abilities to borrow, to pay. and so forth. and they're traditionally just very, very difficult to deal with. so another state matter there would be to require that the facilities plans that are required for homeowners associations include in them an earthquake analysis and set aside some sort of insurance in order to deal with the need for replacement funds, you know, following an earthquake.
many years ago ending in i think about 1992, the state of california had a program that was funded off of a small fee on property insurance policies that went into a fund. the idea was that would pay off . it could pay off to, say, $10,000 at that time per dammed building. it wasn't -- -- per building. it wasn't insurance as much as it was for repairs it worked very well. but when the state looked at what the potential for that kind of a program in terms of the hit on the state budget it would either have huge, huge losses that weren't budgeted, weren't covered. or the state would renege on that promise and pay a dime on the dollar in terms of the $10,000 expected. so that was then repealed in terms -- and replaced with the earthquake insurance that we
have now from what i understand about 10% of san franciscans now have earthquake insurance. very small penetrations. so we have discussed some of these issues. you know, i guess, commissioner lee, the bottom line is the ideas haven't been too exciting. commissioner lee: will these options be listed -- this type of discussion be put in the final report or something like that? >> there will be a discussion. excuse me for stepping on the end of your question. there will be discussion in terms of the dixie in repairing and financing repairs. i think we will certainly mention the options that include state legislation for facilities plans with homeowners associations. i don't get the sense of advice the committee would support making earthquake insurance mandatory i think it was a better deal. if it was a better deal, there probably would be better support for it.
but because it's such a bad deal at the present time, it's not. retrofitting is clearly the way to go. i recognize it's an out-of-pocket expense, the disruption that has all of these down sides to it. but it's so much better than these other alternatives like heightened insurance premiums. commissioner lee: if retrofitting is the way to go, has the insurance companies given any indication that they would insure these buildings that have been retrofitted at a lower cost, perhaps? >> the earthquake insurance market is dominated by the california earthquake authority. it applies for buildings only to one and two-unit buildings. and by state law it provides a 5% premium break for retrofitting. that was just an arbitrary number that was reached, i guess, when the legislation was being passed. it doesn't reflect the actuarial changes that occur
once being retrofitted that require state law to change that. personally, i think it should be changed. when it comes to other buildings, building owners can get earthquake insurance through private insurers. there are a couple of company that do only earthquake insurance. their policies are directly competitive. you can get different terms like lower premiums -- excuse me. not lower premiums. lower deductible limits. when it comes to larger commercial buildings -- and i don't know where the breakoff is -- there is earthquake insurance. and it usually depends on having a thorough building evaluation and a requirement such as probable maximum loss of 20% or less before they'll write earthquake insurance. but we believe that that mechanism has worked for a large number of commercial buildings in san francisco because of owner -- excuse me, lender requirements and insurer requirements have caused work to be done on a large number of buildings in order to get the
probable maximum loss to 20% or less, and have that coverage. so it's kind of a mixed bag. chairman murphy: commissioner hechanova? commissioner hechanova: under the finance and care has there been some discussion under the possibility where there are higher at-risk zones, that there could be a pooling or an aggregate of insurance, insureability, of those property owners? and i don't have an answer nor is there one probably, but in the coverage issue there are those that are in the higher at-risk zones that it isn't sure that they will get damaged. so there should be some incentive for those property
owners at those locations by which maybe there could be an aggregate insurance premium that the property owners can -- if for lack of a better description, almost intensely in common buy into a program. >> commissioner, it's a difficult question. i have not heard of a pooling insurance for particular areas. i know one of the problems with any insurer is there tends to be adverse selection. those of us who live in dangerous places or have weak buildings go to insurance to cover, you know, our rifpblg in some cases. -- risk in some cases. and those with better buildings or better locations are long away from the fault will not necessarily buy it. so the exposure is highly concentrated. insurance is regulated by the state. the insurance commissioner
really has two jobs. job number one is to make sure the insurance companies that are licensed within the state have adequate reserves to pay off their losses. and the second is to ensure that the premiums being charged have an actuarial basis for it. that latter requirement that there be an actuarial basis has strictly been a hang-up for insurance companies offering, you know, mitigation as incentive and dealing with some of these issues. because it's so difficult to quantify the actuarial basis of these kinds of policies. whether or not insurance even works as a mechanism, there are other problems with federal law and taxation. i know the insurance industry if they were here, would be telling bus it. -- -- us about it. but after the earthquake there was a state program, sold statewide, for loans to help owners repair. and those were loans. and they were used.
and they were paid back. just a few years later when the north ridge earthquake struck, california was in a worse economic condition then and the idea for bond measure failed and the state did not help with that recovery. but in that case the city of los angeles stepped in and had created a program to help owners of multi-owner buildings finance, make repairs and move ahead. i suspect the answers to a lot of this will be after the fact and will require government intervention for funding. that's, again, not so much of our report. it is a good argument why retrofitting makes sense and is in the best interest of the owners as well as tenants. commissioner hechanova: thank you. commissioner lee: i was wondering if the committee has talked also about if there are tenants that are relocated, would there be some support for them? and i was thinking for a lot of wood frame buildings, especially the smaller ones in
san francisco. not only residential tenants, but they toned have a lot of storefront, small business tenants. and with the discussion, any support for those small businesses or non-profits that might be relocated temporarily while the retrofit is happening? and also, is there a guarantee of some type of pass through that would limit the landlord from just totally turning over those types of businesses because they would want to after the retrofit rerent it to a much higher paying tenant? any discussion on those impacts or how that education could be done? >> these questions have come up, and there has been discussion. and i think issues that deal with residential rent control are ones that properly fall within the rent stabilization boards' per view. my understanding is that when an expense is mandatory, that
the owners are allowed to pass through a certain percentage of that per year over a period of time. however, there's limits. in terms of how effective that really is. a very large number of buildings in san francisco are already at market. and so even if you're allowed to pass through an additional 10% that puts your rent over market. and then you can't rent those units, you know. with the supply in demand controls over what the market sets, sometimes you're just in the room to charge more. so that affects probably more than half of the units. taking several weeks coulding the death mill for many businesses. finding ways to do that where it's not terribly expensive working at night and quietly, one of the suggestions is that
the retrofitting of those buildings could be timed to the termination of leases so that when a lease is up and tenants are being changed that perhaps retrofitting would become mandatory at that time. that allows a natural break in that commercial process that is going on. i'm not sure how that's going to be addressed. and the legislation now pending before the city that deals with the five-unit buildings in greater. because a large number of those buildings do have commercial tenants on the ground floor. you know, those issues are being dealt with by a variety of city agencies and interests outside. chairman murphy: commissioners? >> commissioners, thank you very much. chairman murphy: thank you. any public comments on this
item? >> good morning, commissioners. luke o'brien. i've been involved in some of the meetings with the capss program for a while. it's something that will clearly have an impact on the city. there's a lot of work going into it. a couple of brief points. one, i would like to suggest that the calculation gets somewhat simplified. can i -- i can tell you from experience that the process for estimating a capital pass through when you do an improvment to a rental building that is so complicated that on occasion if you would call the rent board and talk to someone
on that department and ask them to calculate how much you're entitled to calculate the rent as a result of a new rent, new foundation, retrofitting, whatever you've done, sometimes they don't even take on the initiative to answer the question because they're afraid that they may give you the wrong answer. and i know for a fact that there's quite a few members of the landlord community who just don't it because the work involved is more than it's worth. especially when you end up potentially leaving yourself open for getting the wrong amount. and then you can be sued or a claim can be made against you for those damages. the other is i've had experience doing retrofitting. not mixed use. i don't have direct experience of that. but for strictly residential. and interestingly enough, the one set of tenants that i lost actually was only because of
the noise that was generated from the machines used for doing the steel work and the foundation during that period of the project. i didn't lose them prior to it. i didn't lose it afterwards. these people happened to be running a business. so they were there during the day. so you get a double whammy there. you try to hope you're doing the work during the day when everybody's not there because they're at the office or at their place of work. but it can be done. on the commercial one, the only way it's going to be possible is if they can relocate the business. there's no way around it. we're dancing around that issue a long time. the only way to do it -- [tone] if we have an earthquake, then they will be out of business anyway because the building will fall down. so you can either do it under a controlled circumstances and anticipate as much as possible, control it, mitigate as much as possible. or you can wait until the big one, as they call it, comes and then the decisions will be made for you anyway. and it will be red tagged and they'll all be out of business. if we do it beforehand, they
may be able to stay in business during that period. thank you very much. chairman murphy: thank you. further public comments? seeing none. >> we can move on to item number eight. discussion and possible action regarding request for extension of capps program. >> thank you. deputy director. in your packet you have agenda number 8. on the second page of that is a little time frame. i just want to call your attention to the need to do a time extension, no cost extension to this contract. just to have it end up on the december 31 deadline that mr. tobin was talking about in the next steps part of his presentation. the contract says that they'll be done in the 24-month period. but we've already extended that because of the mayor's program. and now we need to just make
sure that the contract properly reflects the reality of the additional few months. you can see on this schedule the timeline we started. this actual work in 1999. we started prepping for this i think in 1997. so we are pretty darn close to the end here. it being october now. this is a no fee extension, but i need the approval of the commission to officially do this as part of our contract revision. chairman murphy: how much of an extension are you looking for? >> this would be from the official termination of the contract which is the beginning of this month through the end of september till december 31. chairman murphy: 2019? >> 2010. this very year. thank you. chairman murphy: any questions, commissioners? seeing none. >> i'd appreciate an action on part of the commission to do that.
thank you. chairman murphy: do we have a motion? >> we need to take public comment first. if there's any public comment on the extension of the capps. seeing none. oh we do go ahead. >> luke o'brien again, coalition of responsible growth. if i may, it would be nice to hear just because we have the opportunity that saves us the time of having to read the document which can take a lot more. if we could get a brief summary of what remains to be done and how we may achieve that in the months between now and the end of the year so that it's realistic and we're all comfortable that we can achieve what it is that we're doing the extension for. i would appreciate if it was possible, to just get some feedback on that. then i think you can make a more informed decision on a
vote to extend it or not. thank you. chairman murphy: thank you. further public comments? commissioner lee? commissioner lee: i just have one question. is it possible to shorten the timeline? i mean, instead of going all the way to december, could we possibly finish it in november? i'm just -- you know, the december month we have furlough days coming, holidays. could we possibly move it up to like right before thanksgiving perhaps? finish it up? >> i wish that were possible. i don't believe so. i want to make absolutely certain that the department has the time that we need to review the material that we can bring it to committee and commissions. it's hard, already tightly crunched to make that schedule. but mr. tobin, he went over the deliverables from the time, the reason we're asking for the extension already.
i don't think we reasonably could squeeze it anywhere. commissioner lee: i know we extended it once before. >> right. commissioner lee: i think we're all very anxious to have this project completed. >> right. commissioner lee: i don't know how the others feel about it, but i'd like to see this finished. >> i would, too. believe me. it's been many years. chairman murphy: commissioner hechanova? commissioner hechanova: i have a question for counsel. at the point of where this determination is to occur this month, is there the possibility of voting on it or tabling it to the next meeting? >> i'm not sure exactly when the contract expires on its own terms. [tone] there is a possibility --